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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
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Types of work: output work: fair estimate agreement (before 1 October 2004)

Before the introduction of the rated output work system from 1 October 2004 (NMWM07080) output workers were either paid at least the minimum wage for every hour worked as time work or paid according to a fair estimate agreement.

A fair estimate agreement was an agreement between the worker and the employer which stated the number of hours likely to be spent on output work in the pay reference period. The fair estimate agreement had to be made before the start of the pay reference period which it covered and could not be agreed afterwards to fit the circumstances.

For a fair estimate agreement to be valid there had to be a contract which gave the worker the right to an agreed piece rate or commission rate for each item produced or sale made in the pay reference period.

The main provisions of the fair estimate agreement were that it had to:

  • be agreed between the worker and the employer,
  • be made before the start of the pay reference period it covered,
  • be in writing,
  • set out the number of hours that it was estimated the worker was likely to have spent performing the output work in the pay reference period. (This estimate would not be considered “fair”, if it was less than four-fifths of the average time an average worker would take to do the same amount of work in the same conditions - the evidence of which was the responsibility of the employer to produce),
  • require the worker to maintain a record of the actual hours worked and supply this to the employer as soon as reasonably possible,
  • be supported by a contract between the worker and the employer which set the agreed piece rate.

If the agreement was fair then the worker was only entitled to receive the minimum wage for either the lesser amount of the total hours actually worked or the ascertained hours specified in the fair estimate agreement.

If the agreement was found not to be fair then the employer had to pay the worker the minimum wage for every hour worked in the pay reference period.